The REEF and the SME fund

In the late 1990s, the IFC established the REEF to offer both equity and debt financing to commercial enterprises for a range of renewables, both on and off grid. By November 2001, US$65 million of equity plus debt had been placed with the REEF. Of this, the IFC stipulated that 20-30 per cent should be invested in the off-grid sector, of which 20 per cent should be in deals under US$5 million, and that no proposal would be too small to finance. In the rural solar sector, the REEF's investments were intended to reach businesses who wanted 'to expand their businesses' and support 'consumer financing schemes'.68

Because many investments in the off-grid sector, which included solar, would be of US$1 million or less, and because the returns would be low - not above 10 per cent69 - the GEF approved the allocation of US$30 million. This was to enable the REEF 'to consider opportunities that are not receiving attention from international investment funds, such as smaller or more complex, leading-edge projects with proportionally higher transaction costs'. Even with these funds in place, however, it was felt that the returns on solar loans might not even cover the transaction costs of negotiating the investments.70 The cost structure of the REEF was too heavy for the rural solar markets, and it generally failed to deliver its objectives before it was closed in 2003.

By contrast, the IFC's SME facility had more success in finding solar investments. This fund also used GEF funds - US$20.8 million was provided as debt and equity to the companies. By 2000, the SME facility had invested roughly US$1.6 million in solar companies as debt, equity and even partial guarantee (for banks). The three transactions that made up this amount were with the American entrepreneur's firm in Vietnam, Grameen Shakti in Bangladesh and the fee-for-service business in Central America (as profiled in Chapter 4). But of these businesses, only Grameen Shakti would have a sustainable impact, and here, as we have seen, it was a small loan. It was not sizeable enough to have the same impact as the line of credit and grant the World Bank later put into the country.

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